A new Group Private Mentorship class begins January 6, 2014. Eight weeks of live training with John Paul will teach you everything you need to know to successfully trade futures and currencies. All courses and software are included with lifetime licenses. This new session has classes twice each week.
We expect this new session to fill up quickly. It’s a good idea to reserve your seat as soon as possible.
Remember, group training includes:
• Eight weeks of live training with DTTW founder John Paul
• Each training session is recorded for future playback reference
• All courses and software with lifetime licenses and digital books
• In total, 11 unique methods to trade price action are taught – unlike anything you’ve traded before
• Training goes above and beyond the written material
• Look at each day’s activity and ask questions to improve your understanding with expert insight
In the trading world, much concern has been expressed regarding President Obama’s nomination of Janet Yellen for the position of Federal Reserve Chair. Yellen’s confirmation as Fed Chairman requires Senate approval. The current Chairman, Ben Bernanke, will see his term expire on January 31, 2014. This position would arguably make Yellen the most powerful woman in finance. From an academic view, Yellen believes unemployment and inflation are inversely related. Critics claim she is more concerned with unemployment than regulating inflation.
Traditionally, the Fed’s purpose is to regulate interest rates and money supply. During the financial crises of the last few years, the Fed’s buying of mortgage-backed securities forced the Fed to invest in a specific area of the economy. In addition, the Fed’s controversial bond-buying program sought to drive down long-term interest rates, thereby spurring economic growth. Normally, such fiscal procedures are reserved for Congress. Considering the position of Fed Chair is presidentially appointed and the Fed’s actions deeply affect the economy, any change in the Fed Chair seat results in much investor speculation and action.
Presently, both Yellen and Bernanke want to keep interest rates low in order for a smooth transition and policy continuation at the central bank. Bernanke is trying to make the In contrast, Republicans view the change to be unsettling. They believe Obama may be reshaping the Financial Reserve and offering their party nothing in return. Obama is set to appoint a minimum of four of the Fed’s seven governors. These governors shape America’s monetary policy. With so much control, Democrats will be able to capitalize on supporting lower interest rates and loosening monetary policy (a so-called “dove” financial perspective). Contrarily, Republicans favor a “hawk” position, which emphasizes the use of higher interest rates to keep inflation in check. A recent Wall Street Journal analysis claimed Yellen to be the most accurate economic forecaster among 15 Fed policy makers. With Yellen’s strong professional and academic background, she appears to be one of the most qualified candidates, despite political party debate.
Do you think Yellen is a good choice?
Do you think she will rock the boat too soon?
Do you think she was selected as part of political strategy?
Vice just published an article regarding High Frequency Trading (HFT) algorithms. The illustration is by Jacob Livengood
A few interesting points:
• Half of US stock-exchange trades in 2012 (1.6 billion shares a day) were placed by HFT.
• A University of Miami research paper published in September 2013 indicates that between January 2006 to February 2011, more than 18,000 spikes and crashes occurred in individual stock prices as a result of HFT. These spikes and crashes raised and dropped a stock’s value by almost up to 100% in many cases. Since these trades occur in under a second, they go unnoticed by human traders. The stocks with the most up and down spikes belong to Morgan Stanley, Goldman Sachs, Wells Fargo, J. P. Morgan, Bank of America, and Lehman Brothers before the 2008 US financial crisis.
• HFT algorithms, or robots, work together in raising and dropping prices. Others flat-out compete with one another.
• The counterargument for the need of HFT is that such activity creates volatility, which is good for trading. Italy was the first country to pass tax legislation specifically for curbing HFT. An argument against HFT is that regular human traders do not stand a chance. Experts are concerned HFT trading can be manipulated for cyberwarfare.
• Professor Neil Johnson, a researcher in the field of finance, would like to devise an environment that mimics the market. By doing so, he believes he can learn how to stay one step ahead of HFT.
The first part of this live webinar recording explains how to use the Atlas Line to evaluate whether a trade is still viable after big market spikes. By checking if the current plotting Atlas Line position is more than double the ATR, a trader can determine if the market is “exhausted” and not worth trading. If the value is less, the trade is still viable. The Atlas Line’s entry, profit target and stop loss can then be placed according to the rules. At around 7:00 in, John Paul explains what the ATR is and how to configure it. At about 13:00 in, John Paul discusses trade management from the last few days. Again, the profit and stop loss values are taught to you in the live training. However, John Paul goes over them briefly in this video at the 15:00 mark. Fast forward to the 28:00 mark to see a review of this year’s January Effect trading opportunities. The January Effect is sort of a retracement breakout strategy, where there’s an expectation for the market to rise overall for 2013. Each time a previous high value is reached via retracement using a Daily chart, there seems to be consistency with price then rising. According to John Paul, this makes for many good Long (bullish) entries.
In this video, John Paul covers the E-mini market activity almost a month ago where a new high was reached. By examining the behavior of the market on September 18, 2013, we can take better advantage of similar market behavior in the future. The January Effect has shown that for nearly every major pullback and return, once the previous high is broken, trading conditions are optimal for a long trade. Almost always, price “blows” through the previous high, making new highs. By positioning ourselves to go long at the previous high, we can possibly position ourselves for profit.
An example of breaking a new high can be found at 2:50 in the video. An FOMC news event seemingly drives price up, past the previous high. Notice that John Paul points out the previous high occurred in April (he’s using a daily or monthly NinjaTrader chart for these long-range comparisons).
Why does price seem to pattern itself this way? John Paul claims the January Effect is responsible. The January Effect says that because January 2013 closed higher than it opened (on the E-mini S&P), we can also expect the E-mini S&P to close higher (for the year) than its opening price. In previous videos, he has explained that the January Effect is a consistent indicator of price behavior. For a review of the recent year and the previous year, fast forward to 5:05 in the video.
At 6:13 in the video, the bad news of the government shutdown as produced some unusual candles. If price breaks 1725 mark, it may be a good idea to go long. In the last few days, the closest we’ve been to this previous high is 1700.25, so we have quite a ways to go. Certainly, if there is news on the debt ceiling or resolve regarding the government shutdown, be ready as price may take off in a favorable direction.
At Day Trade to Win, we always advise traders to watch out for major news events. When significant news occurs (either scheduled or unscheduled), the markets can react harshly, either positively or negatively. In most cases, we recommend staying out of the market until volatility subsides. But what about the big players who know what the news announcement is going to be?
We’ve speculated before about the people who are behind the news events – the people who know what the facts and figures will be (jobless claims, Fed announcements, retail sales, etc.). Although illegal, it is possible for these big players to position themselves in the market AHEAD of time in order to make some big money. According to Mother Jones, this is exactly what happened on September 18, 2013.
On September 18 at 2:00 p.m., the Fed announced that its bondy buying program would not be tapered. Within three milliseconds, several huge orders were placed in Chicago exchanges based on the Fed’s decision. These orders were undoubtedly placed by a high frequency trading algorithm (a computer code that watches the markets and places orders much more quickly than human traders). Long story short, it is a mystery how these seemingly very intentional orders could have been placed so quickly based on the news. Reporters who are aware of news announcements ahead of time are kept in a secured room. The orders also seemed to have been placed too quickly based on the location of the order origin, the exchange, and our current fiber optic technology.
When this story broke on the highly popular social media site Reddit, an alleged, real high frequency trader (“CPlusPlusDeveloper”) was very telling about how high frequency trading works:
“The general basis behind the strategy is the law of large numbers. Bet on a coin flip with a 51% edge one time and you still have a lot of risk of losing. Bet on 10,000 of those coin flips and you’re almost guaranteed to make money. Same principles apply. Take a very large number of small, but uncorrelated, bets with a tiny “edge”. Each individual bet is risky, but the overall strategy becomes remarkably stable. A decent HFT shop will rarely if ever have a month where they lose money, a really good one will hardly ever have a day where they lose money.
How do you maximize the number of bets that you’re taking? First make bets on lots and lots of different stocks. Really all the major American stocks at any given time (and probably all the major European and Asian ones while you’re at it, plus throw in some bets on commodities, interest rates, currencies, etc.). But beyond that take even more bets across time. Design your system so that it looks at a short time horizon. A system that predicts where a stock is going in the next hour can make eight distinct bets on that stock in a single eight hour trading day. A system that predicts where a stock is going in the next second can make 28,800 distinct bets in a trading day.
So, what’s the catch? The size of the strategy becomes capped. An “ordinary” investor like Warren Buffet might take a bet on a company like Coke, and hold it for years. If you have a ton of money like Buffet you can’t just go and buy a bunch of stock instantly. You have to slowly build up your position over time or you’ll move the price up too quickly and end up over-paying. This isn’t that big a deal for Buffet because he has years to get into Coke. But our high-frequency trader only has about a second to get into a stock. The amount of stock you can buy (or sell) in a second (at a reasonable price) is pretty small. Even for a very large company like Microsoft, you might be able to buy 5000 shares or $150,000 worse at a good clip. Your signal probably only expects to make $0.002 or less from your trade, so that means at most you can only make $10 on that bet.
Now you’re making a lot of bets and they do add up, but at the end of the day each one is inherently limited. So you run up against a wall of how much money you can make doing it. A longer-investor like Warren Buffet doesn’t hit this wall in the same way you do. (Ironically you see many successful HFT firms try to become “longer-frequency” to bypass their size limitations). Against that revenue your expenses are high. You have to pay for a lot of computers, expensive data, exchange fees and talented people. None of those things come cheap. Sometimes even if you’re never losing money trading, you end up paying out more in other expenses than you make.
Finally, why do high-frequency traders care so damn much about cutting down their latency to microseconds? All these HFT firms are running variants of the same basic strategies that have been around since the beginning of the industry. There’s only so many ways you can trade in a way that truly changes directions on the order of seconds. For example value investors like Warren Buffet likes to look at financial statements. That doesn’t work for HFT because financial statements only come out once every few months. You need some sort of input that varies on the order of seconds and affects the stock price. And at the end of the day there’s not really that many things that fit the bill.
Consequently almost every HFT shop out there are all looking at pretty much the same things and all have models that look pretty similar. So chances are when you see a trading opportunity so do your competitors. And since the opportunities are so small and everyone’s against their size limit, the first trader to “reach” the opportunity is going to take everything available. So you build low-latency systems to try to get to the market before your competitors, and they do the same to you.
In the early days of HFT firms would try to get all kinds of advantages, sometimes even paying extra to drill through walls to get their cabling shorter to the exchange. Nowadays that’s pretty much gone, because the exchanges want to promote equal access. This makes sense from the perspective of the exchange. One, they sub-lease cabinets in their data center, so guaranteeing that everyone has equal access if they lease from them means they can charge higher rates.
Two the exchanges would rather have HFT focus more effort in improving their algorithms than their time to trade. More sophisticated algorithms usually mean tighter spreads, faster responses, higher liquidity. All of that tends to leads to more trading happening. Since the exchanges make most of their money by charging a small fee on every trade that leads to a better bottom line. By alleviating the concerns about someone else having preferential access, it promotes a lot more overall activity.
Most HFT firms are structured as proprietary trading operations. Meaning that they only invest the money of their employees and principals. This is generally because they are limited by their trading capacity. A long-term investor like Warren Buffet can invest other people’s money and charge them a management fee for the service. Because of his high capacity there’s enough room for billions of his own money and other’s.
But say you have a trading system that’s limited to making $10 million a year on a $10 million investment. Letting in half the fund to outside investors means that you’re giving up $5 million in profit, for probably a few hundred thousand in management fees. As long as the principals have enough money to reach capacity (which they almost always do), they’ll exclusively invest their own money, and ignore outside investors. Plus no outside investors means a lot less regulatory headaches.
Even the big hedge funds that do HFT, like Citadel and Renaissance, structure their HFT activities into separate funds that are only investable to employees and owners of the firm. So generally regular people won’t get the chance to invest in HFT no matter how much money they have. The one exception might be if you make a seed investment in a startup operation, but needless to say that’s a lot more risky than investing with an ongoing firm.
Other than that if you see somewhere offering to invest your money in HFT strategies it’s almost always at best mis-marketing and at worst outright fraud.”
On occasion, we like to produce a monthly summary of how well the Atlas Line has performed based on the Recent Trades data. June, July, and August of this year were all successful months as indicated by the totals below.
Total # of trades = 79
Total # of days traded = 22
Total net profit or loss (using 10 contracts excl. fees, slippage, etc.) = +$26,250
Total # of trades = 67
Total # of days traded = 22
Total net profit or loss (using 10 contracts excl. fees, slippage, etc.) = +$11,875
Total # of trades = 72
Total # of days traded = 20
Total net profit or loss (using 10 contracts excl. fees, slippage, etc.) = +$27,870.50
If you trade the E-mini S&P 500 Futures, remember that you will need to roll over to the next contract period (December, 2013) by September 20, 2013. On September 20, 2013, the current contract period expires. Note that it is possible to switch over earlier – you can visit the CME’s website and compare the volumes of the two contract periods (Sep 2013 and Dec 2013). When Dec 2013 volume is greater than the Sep 2013 volume, you can switch. At the moment this is written, the December volume is only 11% of the September volume, so it is much too early. You can always find the contract expiration date for any future by visiting the CME Group website, searching for the future, and clicking on the Product Calendar for the selected future (also called a product, market, or instrument). For example, the December 2013 contract will expire on Dec. 20, 2013.
How to Trade the New Contract Period in NinjaTrader
1. Go to NinjaTrader’s Control Center > File > New Chart
2. In the Data Series window that appears, type in the instrument symbol and the desired contract month, ex. “ES 12-13”
3. Click the New button below, configure your chart settings as desired in the right panel, and then click OK
4. The chart with the new contract period is now displayed. To keep the new chart persistent through NinjaTrader restarts, save your workspace via NinjaTrader’s Control Panel or opt to save your workspace when you close NinjaTrader.
Watch the video above to learn a few handy day trading strategies you can use right away. This hour+ long webinar sponsored by NinjaTrader demonstrates the versatility and effectiveness of price action trading. This video places emphasis on our Power Price Action trading course and why you should be using its methods.
First, John Paul explains why he prefers a 5-minute chart over other time frames, and how the ATR (Average True Range) can be used to dictate profit targets and stop losses. He then explains how this year’s price movement is influenced by the January Effect. John Paul predicts that 2013 will “be an up year” because January 2013 closed higher than the price at which the month.
At about 20 minutes in, John Paul talks about how the markets are manipulated. Big players fake out smaller, retail traders by driving the markets up and down, then causing a sudden reversal in which they truly make profit. In the Power Price Action course, you’ll learn to find indications of manipulation and how to trade it accordingly.
At about 29 minutes, John Paul discusses the Yo-Yo Effect. By locating candles that multiple long wicks (or Yo-Yo bars). Such price bars indicate the market is trying (and failing) to move in a specific direction. A grouping of Yo-Yo bars can be used to place your entries.
• 34:00 – learn how you can use NinjaTrader’s features like the DOM window to better see trading opportunities.
• 45:00 – learn how to spot trends
• 51:00 – how to determine the ATR for futures and currencies, and how to gauge your profit, stop, etc. accordingly
• 54:00 – how to use a news calendar to help your trading
• 1:10:00 – a special limited time offer for the Power Price Action course
CFTC RULE 4.41 – HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT BEEN EXECUTED, THE RESULTS MAY HAVE UNDER-OR-OVER COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFIT OR LOSSES SIMILAR TO THOSE SHOWN.
GOVERNMENT REGULATIONS REQUIRE DISCLOSURE OF THE FACT THAT WHILE THESE METHODS MAY HAVE WORKED IN THE PAST, PAST RESULTS ARE NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. WHILE THERE IS A POTENTIAL FOR PROFITS THERE IS ALSO A RISK OF LOSS. A LOSS INCURRED IN CONNECTION WITH TRADING FUTURES CONTRACTS CAN BE SIGNIFICANT. YOU SHOULD THEREFORE CAREFULLY CONSIDER WHETHER SUCH TRADING IS SUITABLE FOR YOU IN LIGHT OF YOUR FINANCIAL CONDITION SINCE ALL SPECULATIVE TRADING IS INHERENTLY RISKY AND SHOULD ONLY BE UNDERTAKEN BY INDIVIDUALS WITH ADEQUATE RISK CAPITAL.
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